Last week, a $1.4 billion asset community bank sent shockwaves through the financial industry when it agreed to be acquired by national fintech, LendingClub Corp.
What most people are talking about is what LendingClub will gain — access to a cheaper and more secure funding, freedom from loan sponsorship fees it pays to its current partner, Salt Lake City-based WebBank, and the ability to wade into other traditional banking activities. But what does the deal mean for the acquisition target, Boston-based Radius Bank? And what does it say about the future of banking?
I caught up with Mike Butler, president and CEO of Radius Bancorp, to find out. The following excerpts from our conversation are edited for brevity, clarity and flow.
BD: What does this deal mean for Radius Bank’s business model?
MB: We think we’re a fintech company with a bank charter. And LendingClub is obviously a fintech that’s thinking about banking. When you bring them together, it’s a nice combination of two companies looking to do the same thing.
Radius will have an opportunity to plug itself into the infrastructure of LendingClub and leverage a lot more of what we’ve built to provide both of our clients with better products and services. We will be operating out of our Boston location here in the Innovation District, not only driving our direct-to-consumer business, but also our commitment to fintechs on the strategic partnership side. As part of our early discussions with LendingClub,there was a lot of interest in our banking-as-a-service model, and we think that’s a great opportunity for us to expand further.
What a lot of people haven’t been paying as much attention to are our commercial lines of business and the opportunity for us to provide LendingClub with the diversification on the loan side that everybody’s looking for.
BD: You mentioned that Radius will be plugging into LendingClub’s infrastructure. What are your thoughts on how the companies will meld their teams?
MB: We’re going to help accelerate what is a fairly strong knowledge base inside LendingClub about regulatory and traditional banking. So we get a chance to leapfrog based on our work and our relationship with our regulator.
This is nothing like a traditional bank merger where cost saves are part of it. Things like overlapping technology and elimination of headquarters or branches are all distractions inside a traditional merger that keep you away from leveraging the beauty of a combination.We’ve got an acute focus on our objective of delivering superior products and services into the marketplace, and we won’t be distracted by those other issues, which will allow us to be more successful.
BD: I know Radius is run a lot like a tech company. Did that play a part in the relationship with LendingClub?
MB: It’s a big part of it. There is a cultural connection in any good merger. We’ve hired a lot of people from outside the banking industry and are teaching them banking. LendingClub has a whole group of technology people that they are teaching banking to as well. So, there’s a lot of cultural connections with what we’re trying to accomplish.
Beyond the cultural connection of people and mission, our national deposit gathering with industry-leading online banking and the awards we win for our product, make us a perfect match for a company like LendingClub, who also does business nationally.
As fintechs have evolved, they’ve done a great job in proving that they can take some banking products and produce them in a much more consumer-friendly way. But I think what we always thought is there would be a rebundling, in which companies would recognize that operating within a bank charter allows them more flexibility and profitability to deliver their products and services to clients. This deal reflects that; it’s the first step in the rebundling of financial services.
BD: How have regulators responded to the deal?
MB: LendingClub has been in the de novo application process for over a year, predominantly with the Office of the Comptroller of the Currency. And I think it’s safe to say that the regulators were positioned to issue a de novo charter to LendingClub, but LendingClub felt — and did feel all along — that an acquisition was a faster path. We were lucky enough to find each other over six months ago to start talking about this. And so a lot of work has been done behind the scenes.
In our discussions about the opportunity for a fintech to buy a bank, we’re extremely confident that the Federal Reserve and the OCC — and both of their offices of innovation — recognize the inevitability of this type of event and want to participate in helping the future and being a part of it, rather than not being part of it. So, we’re excited and optimistic about how the process will go.
BD: Do you think your model might be a clearer path to getting fintechs involved in traditional banking activities?
MB: I obviously do; we’re a fintech company with a bank charter. I always said, “Why wouldn’t a fintech company want to acquire a bank that had forward-looking people and technology as a path to create what we see as the future of the industry?”
You’ve got to be careful about the number of banks that may be out there that are really prepared to help accelerate a fintech to get to the next level. That will be the challenge with people pursuing this avenue, and that’s why we’re excited to be the first one. But I do think the combination of fintechs and banks will become more and more prevalent.
BD: Is this the start of a new trend?
MB: I think it is, and I think you’ll see a couple of things happen. I can’t tell the future, but I think there will be several more banks that have considered developing more digital technology accept and move forward on doing that. And I think you will see more fintechs taking a look at banks as a way to rebundle and provide themselves with a path to profitability.
I do think there will be many that wait to see how the approval process takes place. I don’t think there’ll be a rush to it. Matter of fact, we like our competitive advantage. Another year with a competitive advantage would be good for us. So that’s OK by us.
BD: What does this deal say about the future of banking?
MB: It signals that technology has to become the number one component and driver to acquiring and servicing clients at the level that today’s consumer demands.
If banks haven’t been believing that technology is going to be a big player, then they need to start developing something quicker, rather than later, as it relates to their own business — to think about how they will participate in the future.
What I tell bankers is that transforming a bank into a digital platform is not an insurmountable task. I hope that I’ve proven to people that it can be done, and it can be done very successfully.